The Ministry of Finance is considering setting a cap on local government debt, a fiscal official said on Wednesday.

The step would be the latest in the country's work to better regulate and improve the structure of local debt, said Zhao Quanhou, head of financial research with the Fiscal Science Research Center, which is affiliated to the Ministry of Finance.
[HongKong Richful  - Hong Kong Company Formation, Offshore Company Incorporation]

Zhao said efforts to gather detailed information about local government debt are being tested out at the moment.

The program, known as the Government Financial Management Information System, aims to convert "statistical data" released by local authorities into "accounting data", which will be the first step toward establishing a comprehensive management system, he said.

"It will include information on the purpose of items, the source of approval documents and the whereabouts of money."

In setting borrowing limits for local governments, officials will take into account management systems, GDP levels, urbanization and current debts.

"The mechanism is still at the planning stage and has not been made final yet," Zhao said.

A recent report by the State Council's Development and Research Center showed that China's central and local governments had 23.76 trillion yuan ($3.8 trillion) in debts by the end of 2010.[HK Corporate Registration]

Wei Jianing, who compiled the report, said many of the loans issued in 2009 to battle the global financial crisis are now due. Local debts, in particular, require urgent attention as local authorities see their revenues drop amid a tightening of real estate regulations.

National Audit Office said 42 percent of those debts will come due by the end of 2012, and 53 percent at the end of 2013.

On Tuesday, Guangzhou released data on its local debt, saying the amount stood at 241.4 billion yuan by the end of June.

The city's debt has been decreasing over the past two years. Yet Guangzhou officials are still beset by worries stemming from idle funds and capital flight.

Finance Minister Xie Xuren has called for tougher regulation of local government debt.

Zhao said government debt is now being managed jointly. The National Development and Reform Commission is in charge of approving local projects, banks are responsible for financing and the Ministry of Finance is undertaking various related tasks.[Hong Kong Company Formation, Incorporation, Business Registration]

"Government control needs to play a bigger part in the process," he said.

Placing local governments under borrowing limits will force them to consider the best way to allocate the debt they can take on to projects they want to undertake, Zhao said.